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Sunday, October 29, 2006

Politics and Reality, The Minimum Wage.

In his newest effort to attract votes after another fund raiser plead guilty Friday, Gov. Blagojevich of Illinois decided he not only wants to raise the minimum wage to $7.50 per hour, but also have it annually indexed for inflation.

I've never quite figured out why politicians spend so much time on an issue that it about as irrelevant as it gets for affecting actual voters.

According to the Bureau of Labor Statistics about 2.5% of all workers earn the federal minimum wage or less in 2005. Granted, Illinois and other states do have higher minimum wages, but the percent distribution would probably be very similar on wages if you used the state wage as the benchmark.

Of that group about 25% aren't of legal voting age. That gives you about 1.8% of voting age people earning that amount. The majority of those workers are in the lower end of the age spectrum, meaning they have a horrible record when it comes to voting, about a 30% turnout.

So why do politicians spend lots of energy on something that in terms of actually affecting the electorate does just about nothing? Well, it's a great soundbite policy to play with, and both sides are guilty.

The Democrats claim the "big mean businesses want to shaft the worker" when the truth is, few workers earn the minimum wage, and most of them are either still in school, and/or working part time. (Go to that link above at the BLS). 75% of the folks earning the minimun are either in two income families, or have never been married.

The GOP says it stifles job creation, which is partially true, but again for kids in school and part time low end jobs. It may correlate to bigger companies not opening shop where employees families would have a hard time finding work, but that data is kind of hard to correlate.

One arguement that is probably true (based on the BLS numbers) is the GOP claim that the market will set the wages accordingly. Since 1997, when the federal minimum wage was last raised, the percentage of the workforce earning that amount has dropped from 6.7% to 2.5%.

Every time the miminum is raised the percentage earning it goes up, indicating employers, at least in the short term, are willing to freeze wages for some, but then within two years there is another drop in those earning that amount. In other words, the market does set the labor rate.

CATO did an interesting study in the early 1990's on the subject, which held true from 1938 to 1992, so I have no reason to believe it's basis would change in the last 14 years. According to that study the people most affected by increasing the minimum wage were those who earned it (duh), but the affect isn't one politicians wanting the increases will talk about. Every time the minimum wage goes up unemployment for the groups who typically earns it goes up right along with it, and not by a small amount. When the 1991 minimum wage raise went into effect some groups saw their employment numbers drop by 10%, with an overall raise for that income group of 6.7%.

So, when you hear the next "issue ad" about the minimum wage, think about it. Very few earn it, and regardless of the sound bites, a very tiny amount are trying to raise a family on it. Worse, a bunch of them are probably going to end up unemployed by the raise.

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5Comments:

Blogger shoprat said...

The bottom line is that labor has a given value at any time and to increase the monetary worth of it simply reduces the value of the dollar. We should have learned that during the Carter fiasco but apparently we didn't.

5:35 PM  
Blogger Gayle said...

My daughter worked for a supermarket part time during her senior year in high school and was quite happy with the minumum wage. I believe most people living on the minimum wage are not really "living" on it. I know many high school students who work just for extra pocket money; their parents support the roof over their heads, their clothing and their food.

Shoprat said "we should have learned that during the Carter fiasco but apperently we didn't." It's a problem with every issue that too many Americans don't pay any attention to history or how it has a habit of repeating itself.

6:04 PM  
Blogger Crazy Politico said...

Shoprat, you're dead on with that one, though WIN from Ford helped prove that, too. Wage and price controls did nothing for the long term good of anything.

9:46 PM  
Blogger Jimmy the Saint said...

Sounds like Repubs don't learn from history. Iraq and the Middle East ring a bell?

10:29 AM  
Blogger Crazy Politico said...

Jimmy, they don't ring a bell in the context of the minimum wage.

3:06 PM  

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